Illustration 12.4 Qualified Independent Auditor's Report Due to the Inability to Obtain Sufficient and Appropriate Audit Evidence

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Antony Hawkins
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1 Extract from: Prinziples of Auditing (Rick Hayes et. al. third edition, 2014), page 470 ff. Illustration 12.4 Qualified Due to the Inability to Obtain Sufficient and Appropriate Audit Evidence We have audited the accompanying financial statements 20XX of Company XYZ Amsterdam, which comprise the consolidated and company balance sheet as at December 31, 20XX, the consolidated and company profit and loss account for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information. Management is responsible for the preparation and fair presentation of these financial statements and for the preparation of the management board report, both in accordance with Part 9 of Book 2 Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. to fraud or error. In making those risk assessments, the auditor considers internel control relevant to the entity's reasonabieness of accounting estimates made by management, as well as evaluating the overall presentation of We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for qualified opinion XYZ s investment in Company ABC, a foreign associate acquired during the year and accounted for by the equity method, is carried at on the balance sheet as at XXXX, and XYZ s share of ABC s net income of... is included in XYZ BVs income for the year then ended. We were unable to obtain sufficient appropriate audit evidence about the carrying amount of XYZ s investment in ABC as at XXXX, and XYZ s share of ABC s net income for the year because we were denied access to the financial information, management and the auditors of ABC. Consequently, we were unable to determine whether any adjustments to these amounts were necessary. Qualified opinion with respect to the financial statements In our opinion, except for the possible effects of the matter described in the Basis for qualified opinion paragraph, the financial statements give a true and fair view of the financial position of XYZ as at December 31, 20XX and of its result for the year then ended in accordance with Part 9 of Book 2 1

2 Illustration 12.5 Adverse Due to a Fundamental Departure from Generally Accepted Accounting Principles To: Appropriate Addressee We have audited the accompanying financial statements 20XX of Company XYZ, Amsterdam, which comprise the consolidated and company statement of financial position as at December 31, 20XX, the consolidated and company statements of comprehensive income, changes in equity and cash flows for the year then ended and notes, comprising a summary of the significant accounting policies and other explanatory information. with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our adverse audit opinion. Basis for adverse opinion A provision for unconditional pension liabilities is not recorded in the balance sheet as required by Part 9 Book 2 At the balance sheet date the required provision amounts to approximately... As a consequence, the company's equity and net result, tax effects taken into account, are overstated by... and..., respectively. Adverse opinion with respect to the financial statements In our opinion, because of the significance of the matter described in the Basis for adverse opinion paragraph, the financial statements do not give a true and fair view of the financial position of XYZ as at December 31, 20XX, and of its result and its cash flows for 20XX in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 2

3 Illustration 12.6 with a Disclaimer of Opinion Due to the Auditor's Inability to Obtain Sufficient Appropriate Audit Evidence About Multiple Elements in the Financial Statements We were engaged to audit the accompanying financial statements 20XX of Company XYZ, Amsterdam, which comprise the balance sheet as at December 31, 20XX, the profit and loss account for the year then ended and the notes, comprising a summary of the accounting policies and other explanatory information. Management is responsible for the preparation and fair presentation of these financial statements and for the preparation of the management board report, both in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. Our responsibility is to express an opinion on the financial statements based on conducting the audit in accordance with Dutch law, including the Dutch Standards on Auditing. Because of the matter described in the Basis for disclaimer of opinion paragraph, however, we were not able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Basis for disclaimer of opinion We were not appointed as auditors of the company until after..., 20XX and thus did not observe the counting of physical inventories at the beginning and end of the year. We were unable to satisfy ourselves by alternative means concerning the inventory quantities held at 20XX-1 and 20XX which are stated in the balance sheet at... and..., respectively. In addition, the introduction of a new computerized accounts receivable system in September 20XX resulted in numerous errors in accounts receivable. As of the date of our audit report, management was still in the process of rectifying the system deficiencies and correcting the errors. We were unable to confirm or verify by alternative means accounts receivable included in the balance sheet at a total amount of... as at 20XX. As a result of these matters, we were unable to determine whether any adjustments might have been found necessary in respect of recorded or unrecorded inventories and accounts receivable, and the elements making up the profit and loss account. Disclaimer of opinlon with respect to the financial statements Because of the significance of the matter described in the Basis for disclaimer of opinion paragraph, we have not been able to obtain sufficient appropriate audit evidence to provide a basis for an audit opinion. Accordingly, we do not express an opinion on assess, has been prepared in accordance with Part 9 of Bock 2 of this Code, and whether the Information as 3

4 Illustration 12.7 Sample Wording - Auditor's Qualified Report with Emphasis of Matter Paragraph To: Appropriate Addressee Report on the Financial Statements We have audited the accompanying financial statements of ABC Company, which comprise the statement of financial position as at 31 December 20X1, and the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and a summary of significant accounting policies and other explanatory information. Management's Responsibility for the Financial Statements with International Financial Reporting Standards, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error. Auditor's Responsibility Our responsibllity is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of We believe that the audit evidence that we have obtained is sufficient and appropriate to provide a basis for our qualified audit opinion. Basis for Qualified Opinion The company's short-term marketable securities are carried in the statement of financial position at xxx. Management has not marked these securities to market but has instead stated them at cost, which constitutes a departure from International Financial Reporting Standards. The company's records indicate that had management marked the marketable securities to market, the company would have recognised an unrealised loss of xxx in the statement of comprehensive income for the year. The carrying amount of the securities in the statement of financial position would have been reduced by the same amount at 31 December 20X1, and income tax, net income and sharehoiders' equity would have been reduced by xxx, xxx and xxx respectively. Qualified Opinion In our opinion, except for the effects of the matter described in the Basis for Qualified Opinion paragraph, the financial statements present fairly, in all material respects, the financial position of ABC Company as at 31 December 20X1, and (of) its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards. Emphasis of Matter We draw attention to Note X to the financial statements which describes the uncertainty related to the outcome of the lawsuit flled against the company by XYZ Company. Our opinion is not qualified in respect of this matter. Report on Other Legal and Regulatory Requirements [Form and content of this section of the auditor's report will vary depending on the nature of the auditor's other reporting responsibilities.] 4

5 Illustration 12.8 Unqualified with a Compulsory Emphasis of Matter Due to Significant Uncertainty with Respect to the Appropriateness of the Going Concern Principle We have audited the accompanying financial statements 20XX of Company XYZ, Amsterdam, which comprise the consolidated and company statement of financial position as at December 31, 20XX, the consolidated and company statements of comprehensive income, changes in equity and cash flows for the year then ended and notes, comprising a summary of the significant accounting policies and other explanatory information. with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 of the Dutch Civil Code, and for the preparation of the management board report in accordance with Part 9 of Book 2 of the Dutch Civil Code. Furthermore management is responsible for such internal control as it determines is necessary to enable the preparation of the financial statements that are free from material misstatement, whether due to fraud or error. to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity's reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion with respect to the financial statements In our opinion, the financial statements give a true and fair view of the financial position of XYZ as at December 31, 20XX and of its result and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the European Union and with Part 9 of Book 2 Emphasis of uncertainty with respect to the going concern assumption We draw attention to note X to the financial statements which indicates that the company incurred a net loss of... during the year ended 20XX and, as of that date, the company's current liabilities exceeded its total assets by... These conditions, along with other matters as set forth in note X, indicate the existence of a material uncertainty which may cast significant doubt about the company's ability to continue as a going concern. Our opinion is not qualified in respect of this matter. Report on other legal and regulatory requlrements 5

INTERNATIONAL STANDARD ON AUDITING 510 INITIAL ENGAGEMENTS OPENING BALANCES CONTENTS

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